By Daniel Bases
NEW YORK, Oct 17 - Former U.S. Treasury Secretary Robert Rubin said on Wednesday Japan's policy of keeping the yen weak could hurt an already struggling economy and it needed to focus on structural reforms instead.
"I don't think a weak yen is the answer to Japan's economic problems, I think the answer to Japan's economic problems lies solely in the area of structural reforms, trade policy and open trade markets, and dealing with the fiscal problems," said Rubin, who won accolades for his surplus building tenure as Treasury Secretary in the Clinton Administration from 1995 to 1999.
Vowing to keep the yen in check, Japanese authorities sold the currency seven times last month in order to keep it from strengthening.
A strong yen contributes to a stifling of its export-led economy by making prices for its products less competitive in the global marketplace.
Japan's intervention helped boost the dollar from six-month lows below 116 yen to just above 119 yen at the start of this month. Since then the dollar has continued to rise, nearly reaching 122 yen.
"I'm not saying a weak yen might not have a short-term effect... but I think it is actually harmful to think of a weak yen as an answer to Japan's problems because it could deter people from facing the issues they need to face, which are the hard issues," Rubin told investors at a forum co-sponsored by the Japan Society and Salomon Smith Barney.
Rubin said he believed Japan would emerge from its current decade of economic difficulties, but "the challenges to reaching that point are very great and the delay in meeting those challenges has simply made the challenges greater."
NOT WITHOUT PAIN
Tackling those systemic problems won't come without pain, Rubin said.
"The change that seems absolutely necessary for Japan to get back on a healthy track for the long term will almost inevitably create additional difficulties and higher unemployment in the short-term," said Rubin, who is now chairman of Citigroup's executive committee.
Among the changes highlighted were reforming the banking system, which he said was "generally viewed as having substantially higher levels of troubled loans than is officially acknowledged."
"We need to finally liquidate those loans and operate on a true credit basis going forward," Rubin said.